Foreign trade, to the detriment or exclusion of domestic sources of the same products, is just another way of aligning those who participate together in an economic system and those who do not. Just as a wealthy self-sustaining country can geographically border a poor country, and just as there can be a self-sustaining rich class and subsistence level poor living in one country, there can be those in two or more countries that benefit and sustain each other while their more immediate neighbors or fellow countrymen are unable to participate in the trade relationship. Economic systems do not necessarily coincide with geographic boundaries or socio-political systems; economic compatriots may not necessarily be geographical compatriots. It is always, of course, possible that in one region or country, everyone will find their needs best and most economically served by their countrymen all fully employed, and so the economic system and the state will coincide purely for economic reasons. But that is not likely; at some point, outsiders may likely provide better services or cheaper prices, and thus purely in regard to trade, may be better trading partners. Of course, one may (prefer to) trade with one's own countrymen for non-financial reasons, or for mixed financial and non-financial reasons (which I will explain shortly) just as one may patronize a slightly more expensive store because it is more convenient or because you like the owners or workers or ambience better. Financial considerations are not always the only basis for choosing a trading partner.

A mixed financial and non-financial trade impetus for doing business with one's neighbors or countrymen arises when one feels humane obligations for one's neighbors or countrymen and yet trades with distant people for economic reasons and then shares the profits with the neighbors or fellow citizens in the form of charity or welfare payments or some other sort of subsidy. One may actually be spending more money that way, then by buying from the neighbor to begin with. But one may not realize that. If one did not care about the neighbor, one could keep his profit, but if one were going to care about the neighbor and want to have as much profit as possible, the financially more profitable arrangement may be to trade with the neighbor to make him self-sufficient, even if the particular product costs more than it does abroad.

Of course the best solution is for one's deserving⁽¹⁾ neighbors and fellow citizens, and every other deserving person in the world, to be fully employed meeting each others wants and needs with the minimally necessary amount of undesirable work and burden for everyone. The problem is that, for various reasons, needs and the labor to meet those needs do not always logistically correspond. For example, there may not be enough need in a community for two homebuilders but there may be need for more than one. Or there may be three homebuilders in that community but none in another community that needs only a part time builder. Or there may be demographic changes over time such as in school teaching, where fewer school teachers are needed one year than another. Or, as when the polio vaccines were discovered, new work had to be found for the researchers working toward finding a prevention for polio. But since many jobs require prolonged training or expensive equipment, one cannot simply change abruptly from job to job as conditions and needs change, particularly when changes are abrupt or unforeseen. In the days of Adam Smith, when most skills could be learned fairly readily, when whole companies or industries were not made obsolete in relatively short periods of time, and when it took much labor to meet even the most basic needs of people, the market could probably more easily line up needs and available labor than it can today. Part of the function of economic systems is to get the best possible correspondence between needs and available labor to meet those needs, with the least difficulty and with causing the least (or no) other sorts of problems, such as coercion, discrimination, unfairness, domination, etc. Insofar as a market economy can do that, it is a good system, but insofar as the market cannot do that in the best way, it needs modification.

[Keep in mind I am only talking about certain kinds of needs-- the needs which labor could be available to meet. I am not talking about needs that could not be met no matter how much labor was available, such as a cure for a kind of cancer or psychosis or for a mode of instantaneous travel (ala the Star Trek transporter) that has not been invented or discovered yet. Those are not purely economic matters, if economic matters at all (apart from determining how much potentially successful labor is involved in the search). Labor alone, without adequate knowledge or without adequate tools or resources to begin with, is not always sufficient to meet a need. Economic systems would not be reasonable or necessary if there were no needs or if there were no way to meet any needs no matter what the social arrangements. Economics would have no purpose in paradise and it would be of no use on a desert isle that has insufficient resources for anything to be fashioned from any amount of labor. Nor am I talking about needs for which labor could be available but only at the expense of meeting other needs which are of equal or greater importance.]

Economic principles, policies, or systems fail:

1) when there are unmet reasonable desires with idle capacity to meet those desires.

2) when there are unmet serious needs with the capacity to meet those needs channeled into far less necessary or totally unimportant products and services.

3) when there are potential improvements in the quality of life that are unable to be actualized merely because of policies or principles, not because of lack of knowledge or resources.

4) when labor is employed in a way that produces more harm than good, particularly when that is done merely to mechanically solve in compliance with economic policies the problem of distribution of society's wealth.

Economic principles, policies, and systems succeed when all deserving people are burdened the minimal amount necessary to meet the maximum needs or give the maximum benefits to all who deserve them in proportion to their desert.

Of course, there can be disagreements about what desires or needs are reasonable, serious, necessary, or important, and there can be disagreements about what might be improvements as opposed to merely changes. And there can be disagreements about how much or what someone may deserve. Economics alone cannot solve those disagreements, and as economics ought not even to influence or prejudice the outcome in unreasonable ways. It may not be obvious and there may be no consensus about when the quality of society is as good and as fairly distributed as it could be; but when the quality of society is acknowledged to be far less, or far less reasonably distributed, than desirable, particularly when there seem to be resources and knowledge available to remedy the situation, one needs to consider the failure of economic principles as a possible cause or contributing factor, and economic experimentation on local scales as possible remedies. Such experimentation need not necessarily be drastic. Economic principles that work need not be thrown out with those that do not work; and whole new policies or systems, with their own attendant difficulties, need not be instituted where only minor or particular changes need to be made. To argue that an economic system could be much improved is not to argue that it needs to be drastically changed or totally replaced; and it is not to argue that all of the features of it are totally without merit or its results without any worth.

I have been discussing mechanisms that allow and promote the use of available labor to meet important needs and desires. The usual economic terminology is "supply and demand," but I believe that is an inadequate perspective. First, "demand" only refers to "effective demand", that is (potential) customers who are willing and able to pay for the supply. There are numerous situations, however, where people with needs do not have the money to pay for those needs, and where there is idle capacity to serve those needs (e.g., empty hospital beds with uninsured ill people needing care, surplus food with hungry children, latchkey children and lonely but capable elderly people who need companionship, etc.). Hence, there is no effective demand, no active supply, and needs or "real" demands go unmet. It seems to me there should be some economic means of solving such situations just as there have been economic solutions invented over time to solve other kinds of mechanical impasses between available labor and resources on the one hand, and the needs they could meet on the other.

A second reason "supply and demand" is not as useful a way of looking at this as is "available labor and needs (or potential benefits or improvements)" is that the product or service in demand may be detrimental to society or even to the individuals involved in the transaction. The laws of supply and demand, though they could apply to every form of labor, clearly ought not to. The judgment as to which services and products ought to be fostered, condoned, or permitted is a judgment prior to the question of how effectively they might respond to supply and demand.

Third, effective demand in undeserving hands can channel labor away from the legitimate needs of others. Obviously a successful thief would have effective demand. But so might a legitimate business that legally wastes or plunders resources (human or otherwise) or capital with no commensurately worthwhile service or product to show for it. The "S&L scandal" of the 1980's and 1990's is not, as it is frequently portrayed, the loss of billions of dollars; it is the transfer of billions of dollars from the hands of people who had earned it, into the hands of people that did not earn it but who spent it anyway. That spending was an effective demand and probably stimulated much economic activity, just not the economic activity it "should" have. For example, it may have stimulated the production of expensive decor for private offices instead of farm products to feed more children or instead of construction of mid-priced homes. Ten million dollars divided among five people will be spent differently, and stimulate different labor, from ten million dollars divided among 10,000 people. If that ten million dollars is all spent domestically, it is not a loss to the country in terms of money either way. But then neither is stolen money that is spent in the country. What is lost is money in the hands of those who deserve it, and what may be lost is labor available to supply the needs of those who legitimately deserve to be able to trade for what will meet those needs.

1. By describing someone as deserving of something, I do not mean to imply some particular criteria of desert, though I would probably argue that people were deserving of something insofar as they earned (worked or contributed toward) it and/or insofar as they did not forfeit the right to it. For example, children and those who cannot work, are deserving of what reasonable benefits society can afford to give them because they have not done anything to forfeit their share of an interdependent society's bounty. But any capable person who, for no good reason or cause, willingly shirks making any contribution to society or who commits crimes or misdeeds related to the benefit in question, I would argue does forfeit at least a certain amount of the bounty of those who do produce.

I realize there are disagreements, not all rational, about issues of desert, even if those may only be vague or intuitive notions, or not ones which we might like at all if we saw them actually spelled out. The principles involving desert should explicitly say so; but what counts toward a person's being deserving or undeserving can be discussed separately. Even when agreement cannot be reached about a criteria for desert, it is important to know that, and thus to know one is operating with a principle that involves an identifiably troublesome component.  (Return to text.)